"Barry Cabs is a sole proprietorship that owns and operates one taxi cab. The company purchased its cab 5 years ago for $40,000. When it purchased the cab it expected it to be useful for 8 years with a residual value of $5,000. Barry thinks he could sell the cab today for $14,000. Barry is considering replacing the old cab with a new, all-electric taxi. The all-electric car would cost $60,000 and would have an expected useful life of 8 years. Over its 8 year life, the cab would reduce annual operating costs (mostly gas and maintenance) by $8,000 per year for the first 6 years, and $10,000 per year thereafter. After 8 years, it is expected the taxi would have a $2,000 residual value. Barry’s cost of borrowing is 15% and assume no tax implications." Calculate (Show excel workings if possible) What is the payback period for replacing the exiting cab with the new electric taxi? What is the net present value of replacing the existing cab with the new electric one? What is the internal rate of return for replacing the existing cab with the new electric one? What is the profitability index for replacing the existing cab with the new electric one?
"Barry Cabs is a sole proprietorship that owns and operates one taxi cab. The company purchased its cab 5 years ago for $40,000. When it purchased the cab it expected it to be useful for 8 years with a residual value of $5,000. Barry thinks he could sell the cab today for $14,000. Barry is considering replacing the old cab with a new, all-electric taxi. The all-electric car would cost $60,000 and would have an expected useful life of 8 years. Over its 8 year life, the cab would reduce annual operating costs (mostly gas and maintenance) by $8,000 per year for the first 6 years, and $10,000 per year thereafter. After 8 years, it is expected the taxi would have a $2,000 residual value. Barry’s cost of borrowing is 15% and assume no tax implications." Calculate (Show excel workings if possible) What is the payback period for replacing the exiting cab with the new electric taxi? What is the net present value of replacing the existing cab with the new electric one? What is the internal rate of return for replacing the existing cab with the new electric one? What is the profitability index for replacing the existing cab with the new electric one?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
"Barry Cabs is a sole proprietorship that owns and operates one taxi cab. The company purchased its cab 5 years ago for $40,000. When it purchased the cab it expected it to be useful for 8 years with a residual value of $5,000. Barry thinks he could sell the cab today for $14,000.
Barry is considering replacing the old cab with a new, all-electric taxi. The all-electric car would cost $60,000 and would have an expected useful life of 8 years. Over its 8 year life, the cab would reduce annual operating costs (mostly gas and maintenance) by $8,000 per year for the first 6 years, and $10,000 per year thereafter. After 8 years, it is expected the taxi would have a $2,000 residual value. Barry’s cost of borrowing is 15% and assume no tax implications."
Calculate (Show excel workings if possible)
- What is the payback period for replacing the exiting cab with the new electric taxi?
- What is the
net present value of replacing the existing cab with the new electric one? - What is the
internal rate of return for replacing the existing cab with the new electric one? - What is the profitability index for replacing the existing cab with the new electric one?
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